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Final Defendant Charged Pleads Guilty...

...in Largest CD Manufacturing Piracy Scheme Uncovered in United States to Date

Defendant Used Replication Equipment and Fake FBI Anti-Piracy Labels As Part Of Scheme To ...

on 2006-05-31 03:13:31

...in Largest CD Manufacturing Piracy Scheme Uncovered in United States to Date

Defendant Used Replication Equipment and Fake FBI Anti-Piracy Labels As Part Of Scheme To Mass Produce Counterfeit Music CDs Manufactured for Retail Distribution Agents Have Seized Nearly 500,000 CDs and More than 5,500 Stampers as Part of Operation Remaster

SAN JOSE B United States Attorney Kevin V. Ryan announced that the third and final defendant that has been charged in Operation Remaster pleaded guilty yesterday afternoon and admitted in open court to his involvement in the largest music manufacturing piracy seizure in the United States to date. On October 6, 2005, law enforcement conducted searches of 13 locations in California and Texas in the undercover investigation called Operation Remaster. The FBI estimates that approximately 494,000 pirated music, software, and movie CDs, and DVDs, and more than 5,500 stampers were seized during those raids.

U.S. Attorney Kevin V. Ryan stated, "This third guilty plea in Operation Remaster further demonstrates our commitment to prosecuting those who would steal intellectual property from the developers of music and software. This investigation has broken up a sophisticated CD piracy scheme that was distributing hundreds of thousands of CDs around the country. I would like to thank the REACT Task Force and FBI for their excellent work on this matter. I would also like to acknowledge the superb cooperation we received from the Recording Industry Association of America. We intend to continue the vigorous enforcement our intellectual property laws."

On October 6, 2005, agents seized the following infringed items in connection with defendant Zhai:

63,577 music CDs;

3,837 CD stampers;

2,279 CD masters;

101,375 paper inserts for jewel CD cases

Stampers and masters are used to manufacture CDs. A single stamper can potentially be used to manufacture 50,000 to 80,000 counterfeit CDs of a single copyrighted work.

Many of the pirated CDs contained counterfeit FBI Anti-Piracy Seals, record label trademarks, silk-screened artwork, and inserts to make them appear legitimate. The defendant also admitted that he used a unique tracking system on the Inner Mirror Band portion of the CDs in order to identify the counterfeiting job and the unauthorized copyrighted work. The copyright and trademark violations mostly involved musical works by Latin artists.

FBI Special Agent in Charge Joe Ford stated, "This case involved the large scale production and distribution of counterfeit software and music media, which violates federal criminal law, as well as the legal rights of software companies and music artists. Today's plea agreement further demonstrates the success the FBI and the REACT High Technology Task Force are having in attacking this growing problem."

Operation Remaster is an undercover law enforcement operation conducted by the Rapid Enforcement Allied Computer Team (REACT) Task Force and the FBI. The operation is targeting large-scale illegal replicators of copyrighted music and software. Zhai's conviction is the third conviction as a result of three arrests from the October 6, 2005, raid in from Operation Remaster. On April 3, 2006, YE TENG WEN, a/k/a Michael Wen, 30, and HAO HE, a/k/a Kevin He, 30, both of Union City, California, admitted to participating in a conspiracy to mass-produce pirated music and software CDs. Nearly 200,000 pirated CDs were seized at locations associated with those two individuals.

According to Brad Buckles, Chief of Anti-Piracy for the Recording Industry Association of America (RIAA), AThe value of this prosecution to the entire music community cannot be overstated. This case involves mass quantities of commercially manufactured counterfeits that closely resemble authentic CDs. This kind of illegal product has the greatest potential for deceiving the consumer and displacing legitimate sales. The illegal profits generated by these highly sophisticated operations come at the expense of the artists, songwriters, retailers, record labels and many others whose creative energies make music possible. These pleas-stemming from the largest U.S. manufacturing raid on record-should leave no doubt that the consequences for theft of this kind are real. We commend the U.S. Attorney's Office-and the numerous agents and officers who have worked this case along the way-for demonstrating such a solid commitment to the protection of intellectual property."

As part of his plea agreement, the defendant admitted that, from May 16, 2005, through October 6, 2005, he used the replication machine and other equipment at Magic Media, Inc. and BDG Publishing, Inc. for the mass reproduction of copyrighted music. This equipment allowed the defendant to quickly create tens of thousands of counterfeit CDs. All the counterfeited works at issue are copyrighted in the United States.

The defendant also admitted to serving as a manufacturer, assembler, and packager in the conspiracy. Replicator conspiracies often involve geographically separate businesses that secretly handle different stages of the process of pirating intellectual property. Brokers, replicators, assemblers, packagers, printers, distributors and retailers play distinct roles in the conspiracy. Brokers solicit the orders of copyrighted works, while the replicators have the equipment to manufacture hundreds of thousands of CDs. Printers and packagers are responsible for assembling the CD case, booklet and artwork into a completed CD/DVD package that make the infringed work appear legitimate.

As part of his plea agreement, the defendant agreed to forfeit these counterfeit CDs, stampers, masters, and inserts as well as his interest in equipment used to commit the violations, including a replication machine, a DVD copier, a CD label machine, an offset printer, two overwrapping machines, and two shrink wrapping machines.

The defendant pleaded guilty to a total of five counts:

Conspiracy to Commit Criminal Copyright Infringement and to Traffic in Counterfeit Goods and Labels, in violation of 18 U.S.C. Â§ 371;

Trafficking in Counterfeit Labels and Aiding and Abetting, in violation of 18 U.S.C. Â§Â§ 2318(a), 2318(c)(3), and 2;

Trafficking in Counterfeit Goods and Aiding and Abetting, in violation of 18 U.S.C. Â§Â§ 2320(a) and 2; and

Counterfeiting a Department Seal (the FBI anti-piracy seal used on pirated music CDs), in violation of 18 U.S.C. Â§ 506(a)(1).

The maximum statutory penalty for each of Counts One, Three, and Five is five years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment. The maximum statutory penalty for Count Two is ten years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment. The maximum statutory penalty for Count Four is ten years imprisonment, a $2,000,000 fine, three years supervised release, and a $100 special assessment:

In addition, the defendant's infringing items and counterfeiting equipment are subject to criminal forfeiture and destruction, pursuant to 17 U.S.C. Â§Â§ 506(b) and 509(a) and 18 U.S.C. Â§ 2320(b). However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. Â§ 3553.

Defendant Zhai is scheduled to be sentenced by U.S. District Court Judge James Ware on November 13, 2006, at 1:30 p.m. Wen and He-two other defendants in the investigation-are scheduled to be sentenced by U.S. District Court Judge Ronald M. Whyte on October 16, 2006 at 9:00 a.m.

Anyone with information about illegal piracy can contact the local FBI office at 415-553-7400, or the REACT Crime tip line at 408-494-7165.

Mark L. Krotoski and Matthew A. Lamberti are the Assistant United States Attorneys from the CHIP Unit in the Northern District of California who are prosecuting the cases. The operation is the result of a joint investigation led by the Rapid Enforcement Allied Computer Team High Tech Crimes Task Force (REACT) in San Jose, and the Federal Bureau of Investigation. The Recording Industry Association of American, Symantec Corporation, and the Motion Picture Association of America have also assisted in this investigation.

Further Information:
Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.pl .

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